Class Z shares are a mutual fund class; these shares can be purchased without paying an up-front commission. If you are new to investing, load funds charge up-front commissions and are bought through stockbrokers or advisers, and no-load funds do not have up-front commissions. Do-it-yourself investors typically gravitate to no-load funds and their lower cost structure.
Typically, Z shares are created as a result of fund companies merging. For example, Company A, which markets load funds, takes over company B, which markets no-load funds. The Company B funds now charge commissions and are part of Company A’s family of funds. Z share classes are created for the former Company B funds.
Investors and Z-shares
Investors who are invested in the no-load shares before the merger are put into Z-class shares. New investors cannot buy into these shares and must purchase A, B or C shares through a broker or adviser. You may also find that Z shares have lower expense ratios compared to load share classes. For details on the other share classes, see the fund prospectus. Many other fees may be involved.
Fund Company Employees Eligible
A benefit to working for a fund company is that employees get to purchase shares at net asset value (NAV). Buying at NAV is the same as saying you didn’t pay a load or up-front commission. Employees, unlike new investors, get to invest in the fund through Z shares.
Stick to No-Loads
For most investors, Z shares do not really come into play. Ultimately, you can bypass the alphabet soup of share classes by sticking to no-load funds. It takes a little more effort, but it's well worth it. Various finance websites have mutual fund sections where you can start your research.
- CNN Money; What's Up With Share Class?; Jeanne Sahadi; June 2000
- Morningstar; Which is the Right Fund Share Class for You?; Christine Benz; August 2005
- Morningstar; Making Sense of Share-Class Alphabet Soup; Christine Benz; August 2010
- Morningstar; Fund Middlemen Need to Shape Up; Russel Kinnel; December 2003
- Bankrate; The ABCs of Mutual Fund Fees; Michael Abramowitz
- FINRA. "Updated: Understanding Mutual Fund Classes." Accessed January 10, 2020
- Investor.gov. "DISTRIBUTION [AND/OR SERVICE] (12B-1) FEES." Accessed January 10, 2020.
Jonas Zamora is an independent trader, investor and consultant who has been writing about personal finance, stock investing and trading since 1994. He has written for Zacks, "Via Times" and currently writes about his trading/investing experiences on his blog. Zamora completed the certificate program in financial planning at De Paul University and is a Certified Financial Planner.